This study analyzes the forecasting accuracy of the implied volatility of options on futures contracts for the delivery … of CO2 emission allowances (carbon options) traded on the European Climate Exchange. We demonstrate that option implied … volatility is highly informative about the variance of returns realized over the remaining life of the options. It is also …

futures prices, an implied volatility from carbon options prices, and the k-nearest neighbor model. Based on the results, we … suggests that carbon options have little information about carbon futures due to their low trading volume. We also investigate …